Taxation and regulatory issues of e-commerce, startups and entrepreneurs are by and large uncertain and inconclusive. As on date, there is no uniform tax law that can be applied to e-commerce websites or Internet based businesses managed by startups and entrepreneurs.

In fact, Indian government has introduced some novel way to tax online businesses managed by foreign technology companies having no business establishments in India. For instance, according to the recent Indian Budget announcement, any person or entity that makes a payment exceeding Rs 1 lakh in a financial year to a non-resident technology company will now need to withhold 6% tax on the gross amount being paid as an equalisation levy.

For instance, if a person spends a sum of Rs. 2 lakh on online advertisement from Google in a single financial year, he has to withhold 6% tax on the gross amount being paid as an equalisation levy. This would help in taxing companies like Google that have been opposing imposition of such taxes in India for long.

Similarly, the provisions proposed under the new GST regulatory regime have significant tax implications for e-commerce companies and startups. The new rules will impact not only e-commerce businesses, but also every e-commerce vendor who must now compulsorily register.

According to the Indian Companies Act, 2013 and recent policy decisions of Indian Government, foreign companies and e-commerce portals would now be required to register in India and comply with Indian laws.

As far as Indian e-commerce players and startups are concerned, Indian Government has announced many benefits and concessions for the same to encourage the policies and projects like start up India, make in India, etc. These startups and entrepreneurs are demanding further exemptions and concessions from taxation requirements. Some incubators have even suggested for adequate tax incentives and financial assistance. The Department of Industrial Policy and Promotion (DIPP) has sought the approval of the expenditure finance committee of the finance ministry for setting up a credit guarantee fund. The proposed Rs 2,000-crore fund, a part of the corpus meant for the fund of funds, will provide up to 80 per cent risk cover for collateral-free credit being given by banks to start-ups.

As per media reports, in order to boost the government’s Startup India, Standup India movement, the DIPP is reportedly formulating a new set of tax concessions on employee stock options, unlisted securities and convertible instruments. The latest Union Budget is expected to be announced on February 1st, 2017. The DIPP has proposed that ESOPs for startups should be taxed at the time of sale, when they have a relatively greater liquidity to pay taxes and the instruments get a fair valuation. Also the DIPP has said that the period of long-term capital gains for unlisted securities should be reduced from the current limit of 24 months, owing to the fact that investing in startups is risky and subject to a higher rate of tax. A formal request stating the demand of increasing the tax holiday period for startups to seven years from three years has also been forwarded to the Ministry of Finance by DIPP. In March 2016, DIPP issued a uniform definition of the word startup. Under the definition, a budding entrepreneur with a turnover of less than $3.6 Mn (INR 25 Cr) can avail tax breaks and other benefits for a five-year period.